As noted above, regulations generally impose more specific obligations on dealers under disclosure, due diligence and conflict of interest obligations (each of which will be discussed in detail below) than the principles-based fiduciary duty requirements of investment advisers under the Advisers Act. This approach is designed to adapt the application of principles that have evolved under another business model over nearly 80 years. In addition, this more specific and tailored approach, based on key fiduciary principles, (1) is consistent with the general rules-based regulatory regime applicable to broker-dealers, (2) recognises that some relevant obligations may already be covered by existing requirements applicable to broker-dealers (e.g. broker-dealers are already subject to a best execution obligation), (3) allows us to impose requirements that we believe are better suited to specific conflicts. (4) recognises that it would be inappropriate to apply certain generally applicable obligations of investment advisers (e.g. supervisory obligations) in a transaction-based relationship. The best interest regulations also include a requirement under the conflict of interest obligation for dealers to establish, maintain and enforce written policies and procedures reasonably designed to (1) mitigate conflicts of interest at the related person level, (2) specifically address conflicts of interest that arise when dealers impose significant restrictions on securities. securities or products that: may be recommended (i.e., recommendations for proprietary product lines or other limited products only) and (3) eliminate sales contests, bonuses and compensation in kind based on the sale of certain securities or types of securities within a limited period of time. Conflicts of interest associated with incentives and restrictions on persons related to securities or products that can be referred to retail clients have raised particular concerns in the context of the transaction-based dealer-dealer relationship. Accordingly, the Commission considers that specific additional disclosure and mitigation requirements are appropriate to resolve these conflicts.
Sales competitions, sales quotas, bonuses and remuneration in kind based on the sale of certain securities within a limited period of time create a strong pressure on related persons to increase the sale of certain securities or certain types of securities within a limited period of time, thereby jeopardising the interests of their retail investors. The Commission considers that these conflicts of interest cannot be adequately mitigated and therefore need to be eliminated. As noted in the proposed publication, we appreciate the desire to clarify the requirements imposed by the Best Interest Regulation, and we have sought to provide this clarity by specifying the specific elements that a dealer-dealer must meet in order to fulfill its obligations in the best interest. The changes we are making from the proposed publication to these final regulations in the best interest, as well as the additional interpretations and guidance we are providing, are intended to further clarify how a dealer-dealer can meet these requirements. Consistent with this, the president and the final statement cited the now-rescinded Department of Labor (DOL) trust rule and the positive working relationship between SEC and DOL employees. President Clayton`s statement was as follows: While our standard is based on important fiduciary principles for a number of reasons, including the emphasis that regulation is tailored to the broker-dealer relationship and differs from the fiduciary duty of the investment advisor, we do not refer to regulation as a « fiduciary » standard. and we emphasize that regulation is of all The common law analysis is separate or not whether a dealer has trustees. Tasks. [137] As noted in the proposal, fiduciary standards vary, for example, for investment advisers, banks acting as trustees or trustees, and trustees of ERISA plans. As we have learned from our review of the relationship summary proposal and various investor studies, the use of the term « fiduciary » to describe the standard may not provide sufficient meaning in relation to the specific content of the standard.
[138] In addition, we understand commentators` concerns that using the term in the context of another relationship could lead to further legal or compliance ambiguities. [139] The Securities and Exchange Commission (the « Commission ») enacts a new rule under the Securities Exchange Act of 1934 (« Exchange Act ») establishing a standard of conduct for dealers and persons associated with a dealer-dealer (collectively, « dealer-dealers » unless otherwise specified) when recommending securities trades or investment strategies involving securities to a retail client. (« Best Interests of Regulation »). The regulation enhances the standard of conduct for broker-dealers beyond existing suitability requirements and aligns the standard of conduct with the reasonable expectations of retail clients, including by requiring broker-dealers to act in the best interests of the retail client at the time of referral, without placing the financial or other interests of the dealer above the interests of the retail investor; and address conflicts of interest by establishing, maintaining and applying reasonably designed policies and procedures to fully and fairly identify and disclose material facts about conflicts of interest, and where we have determined that disclosure is insufficient to adequately address, mitigate or, in some cases, resolve the conflict. The standard of conduct set out in the best interests regulation cannot be met by disclosure alone. The standard of conduct is based on the key principles underlying fiduciary duties, including those applicable to investment advisers under the Investment Advisers Act, 1940 (« Advisers Act »). Whether a retail client chooses a dealer-dealer or an investment advisor (or both), the retail client is entitled to a recommendation (from a dealer-dealer) or advice (from an investment advisor) that is in the best interests of the retail investor and does not place the interests of the firm or the financial professional above the interests of the retail investor. While the vast majority of commentators supported the Commission`s efforts to consider standards of conduct for broker-dealers when making recommendations, almost all commentators proposed amendments to the proposed regulations in the best interest.
[37] These proposals touch on almost all aspects of the proposal, which will be discussed in more detail below. However, we have amended the proposed rule in many ways and we also provide additional interpretations and guidance to address and clarify the issues raised by commentators. The main changes to the proposal, as well as the interpretations and guidelines, are summarized below.
